Predicting Credit Card Delinquencies: An Application of Deep Neural Networks

Ting Sun and Miklos A. Vasarhalyi

Chapter 127 in Handbook of Financial Econometrics, Mathematics, Statistics, and Machine Learning:(In 4 Volumes), 2020, pp 4349-4381 from World Scientific Publishing Co. Pte. Ltd.

Abstract: The objective of this paper is 2-fold. First, it develops a prediction system to help the credit card issuer model the credit card delinquency risk. Second, it seeks to explore the potential of deep learning (also called deep neural network), an emerging artificial intelligence technology, in credit risk domain. With a real-life credit card data linked to 711,397 credit card holders from a large bank in Brazil, this study develops a deep neural network to evaluate the risk of credit card delinquency based on the client’s personal characteristics and the spending behaviors. Compared to machine learning algorithms of logistic regression, naïve Bayes, traditional artificial neural network, and decision tree, deep neural network has a better overall predictive performance with the highest F scores and AUC. The successful application of deep learning implies that artificial intelligence has great potential to support and automate credit risk assessment for financial institutions and credit bureaus.

Keywords: Financial Econometrics; Financial Mathematics; Financial Statistics; Financial Technology; Machine Learning; Covariance Regression; Cluster Effect; Option Bound; Dynamic Capital Budgeting; Big Data (search for similar items in EconPapers)
JEL-codes: C01 C1 G32 (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789811202391_0127 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789811202391_0127 (text/html)
Ebook Access is available upon purchase.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:wschap:9789811202391_0127

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().